STMicroelectronics Shares Fall 15% After Profit Miss Despite Stronger Data Center Outlook
Key Takeaways
- •STMicroelectronics reported second-quarter core profit of $679 million, well below the $797.7 million market expectation, due to impairment charges, restructuring expenses, and costs related to its NXP sensor business acquisition.
- •The company guided third-quarter revenue to approximately $3.70 billion, slightly below the $3.72 billion expected by analysts surveyed by LSEG.
- •STMicroelectronics raised its data center revenue outlook, projecting it to surpass $1 billion in 2026 and exceed $2 billion in 2027 as it diversifies into AI-driven computing markets.
- •Management forecast fourth-quarter revenue of more than $4 billion, driven primarily by AI data center and low-Earth-orbit satellite communication customer programs.
- •Despite the 15.10% single-day decline on July 23, STMicroelectronics shares remained up more than 110% since the start of the year.
STMicroelectronics shares dropped sharply on Thursday after the Franco-Italian chipmaker, one of Europe's largest semiconductor manufacturers, reported weaker-than-expected second-quarter profitability and issued a third-quarter revenue outlook that was slightly below analyst expectations.
The stock was trading at €49.47, down 15.10%, shortly after midday on July 23, after closing the previous session at €58.27. Even after the steep daily decline, STMicroelectronics shares remained more than 110% higher since the start of the year, according to Google Finance.
The main focus for investors was the company's second-quarter core profit. Earnings before interest, taxes and depreciation came in at $679 million, well below the $797.7 million expected by the market.
STMicroelectronics said the weaker profitability reflected impairment charges, restructuring expenses, product phase-out costs and accounting effects tied to its acquisition of an NXP sensor business. Those costs outweighed stronger-than-expected quarterly revenue and indications of improving demand across the company's markets.
In its quarterly results, STMicroelectronics also guided for third-quarter revenue of about $3.70 billion, plus or minus 3.5%. Analysts surveyed by LSEG had expected revenue of roughly $3.72 billion.
Jefferies analysts said the slightly softer guidance may be connected to a slower ramp-up of Apple's anticipated iPhone 18. However, they also noted that STMicroelectronics' gross margin guidance and fourth-quarter outlook could indicate stronger performance heading into 2027.
Data Center Revenue Forecast Raised
Despite the near-term profit miss and cautious third-quarter projection, STMicroelectronics gave a stronger outlook for its data center business. The company now expects data center revenue to exceed $1 billion in 2026 and rise to well above $2 billion in 2027, assuming current demand conditions and customer programs develop as expected. The raised target underscores a strategic push into AI-driven computing markets, diversifying a revenue base that has historically leaned heavily on automotive and industrial chip sales.
Chief Executive Jean-Marc Chery said demand increased further during the quarter, supported by strong bookings across all of the company's end markets. STMicroelectronics also reported better visibility and signs of supply constraints in several product categories.
Management expects revenue growth to accelerate in the fourth quarter, driven mainly by customer programs linked to artificial intelligence data centers and low-Earth-orbit satellite communications. STMicroelectronics forecast fourth-quarter revenue of more than $4 billion, signaling an expected improvement after its more cautious third-quarter outlook.
The central question for investors is whether STMicroelectronics' expanding data center operations can offset weakness in its automotive and industrial businesses, segments that have faced cyclical headwinds across the broader semiconductor sector. Fourth-quarter results will be a key checkpoint for assessing whether the data center growth thesis is materializing on the timeline management has outlined.
